What is NAICS?

NAICS is a New Industry Classification System

After 60 years of use, the outdated Standard Industrial Classification (SIC) system was retired and replaced by the new North American Industry Classification System (NAICS). NAICS is the product of a collaborative effort between the United States, Canada, and Mexico. Sharing a common classification system allows, for the first time ever, direct comparison of economic data across borders in North America.

NAICS is a "clean slate" revision of the system we use to classify establishments by industry. Unlike previous SIC revisions, the NAICS changes are fundamental. They recognize hundreds of new businesses in our economy, largely in the fast-growing service sector. The notice making NAICS effective in the United States was issued in April 1997, and the first NAICS US manual was published in mid-1998.

NAICS doubles the number of top-level groupings of industrial classification. The highest level of NAICS classification is called the sector, and corresponds roughly to the division in SIC. There are 20 broad sectors in NAICS, compared to only 10 divisions in SIC. There is increased detail in services, with new sectors such as Information; Professional, Scientific, and Technical Services; and Administrative and Support, Waste Management and Remediation Services. There is a new Accommodation and Food Service Sector.

NAICS has a different numbering system from the SIC

The numeric system of NAICS coding has no relationship to that of SIC. The new system provides five levels of classification (compared to four in SIC) in detailed codes that have a maximum of six digits (again, up from four in SIC), and detailed classifications called "U.S. Industry" (instead of "Industry" in the SIC). NAICS was organized such that industries would be comparable across the United States, Canada, and Mexico at the 5-digit level, called the "NAICS Industry" level. The sixth digit of a NAICS classification may be used differently in the United States, Canada, and Mexico. Below is a comparison of the organizational structures of SIC and NAICS:

SIC

NAICS

Level

Code

Level

Code

XX

Major Group

XX

Subsector

XXX

Industry Group

XXX

Industry Group

XXXX

Industry

XXXX

NAICS Industry

XXXXX

U.S. Industry

XXXXXX

At the heart of NAICS is a production-based concept of classification; that is, NAICS classifies each establishment into a detailed industry based in the production processes it uses. Under the SIC system, some establishments were classified according to production processes, but others were classified using different criteria, such as class of customer. Thus, reclassification under NAICS substantially changes how many and which businesses are included in certain sectors. Examples of how the production-based concept transfigured industrial classification are readily found in wholesale/retail trade, and in auxiliary establishments. Under the SIC, wholesalers and retailers were classified according to the class of customer they served. Instead, NAICS groups them according to how each establishment operates. Retailers typically sell merchandise in small quantities, using public-oriented methods like mass-media advertising and high-traffic locations. Wholesalers, on the other hand, are often closed to the public, sell goods in large quantities, and use business-oriented sales methods such as specialized catalogs and warehouse locations. Thus, establishments previously considered to be engaged in wholesale trade, such as the sale of used auto parts or office furniture, could be considered retail trade if they are open to the public.

Auxiliary establishments, which provide services such as warehousing, personnel, or data processing to other organizations within the same company, are classified in the same industry as their parent companies under the SIC. NAICS, however, classifies these establishments according to the services they provide.

NAICS 2002

NAICS 1997 has been revised to the NAICS 2002 version. NAICS 2002 is the same as NAICS 1997 for 16 of the 20 sectors. Construction and wholesale trade are substantially changed, but the revisions also modify a number of retail classifications and the organization of the information sector. The Current Employment Statistics (CES) survey will convert directly from SIC-based estimates to NAICS 2002; no estimates will be published using NAICS 1997. The CES program will begin publishing State and area data on a NAICS 2002 basis with the release of January data in March 2003.